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Accelerating Reduction: EMC Advances Practice on Climate-Stabilizing Targets
September 21st, 2012
In July, EMC released its 2011 Sustainability Report, which integrated the Global Reporting Initiative Principle of Sustainability Context into its climate stabilization work. Specifically, EMC states on its report website: "Our objective in setting a new goal was to find a trajectory of GHG emissions reduction that:
- Allows for business growth
- Leverages the learning curve for renewable energy sources
- Peaks in absolute emissions before 2015, which is what current science says is required in order to avoid the worst consequences of climate change
- Reduces our absolute emissions by 80 percent below estimated 2000 levels by 2050
Therefore, we adopted a trajectory that requires an accelerating reduction in GHG intensity by revenue year over year, which will meet the above objectives. This trajectory led us to our interim goals of a 30 percent reduction in GHG intensity below 2005 levels by 2012, and a 40 percent reduction by 2015. We will be continually monitoring our progress toward our reduction goals, as well as scientific developments that may suggest we should adjust those goals."
To find out more about this work, which builds on work at BT and Autodesk, “New Metrics of Sustainable Business” Issue in Focus guest editor Bill Baue recently chatted with EMC Chief Sustainability Officer Kathrin Winkler.
Bill Baue: Why did EMC pursue a science-based model for setting goals and targets for greenhouse gas emissions reductions?
Kathrin Winkler: We at EMC believe that metrics need context. Along these lines, we were interested in what BT did — goal-setting for climate stabilization based on economic value-add. The concept intrigued me, so I spent time talking to economists. However, metrics need to be based on publicly reported information, and there is no equivalent algorithm for value-add in the US as is publicly reported in the UK, though I did spent several months talking to economists, reading, and otherwise exploring this option.
As well, the BT model is not ideal, because it's based on global GDP. The GDP predictions were pretty far off, because they were all set before the 2008 recession. And the global economy is so interdependent, it’s hard to predict GDP. I recently read the book by Nobel Laureates Joe Stiglitz and Amartya Sen based on the report commissioned by French President Nicolas Sarkozy on alternatives to GDP. It essentially highlights why GDP fails as a measure of progress. I'd just as soon not use GDP as a measure of anything, primarily because its definition of productivity is obsolete for today's world — increasingly, GDP is not correlated with well-being, whereas sustainability is ultimately about well-being.
Baue: But there aren’t currently alternatives with sufficient publicly available information to base calculations of “fair share” allocations, the way the BT methodology does by comparing company value-add against broader GDP to determine a company’s percentage proportion that then gets applied to its responsibility for emissions reductions.
Winkler: Right. But we found a new approach that uses available metrics when we were introduced to a modification of the BT methodology by Emma Stewart of Autodesk that is predicated on datapoints that are readily and publicly available in the US.
Baue: I just interviewed them about their Corporate Finance Approach to Climate-Stabilizing Targets — I love how they make C-FACT freely available for other companies to use!
Winkler: Yes, I was very taken with C-FACT, and ran it for EMC. One of the things we liked about it was that it actually rewards companies for unexpectedly good revenue, and that creates alignment between our business goals and our environmental goals. But we decided we needed a variant of C-FACT that addresses the goals we have. One thing we changed right off bat: The model used a single compound growth rate for the duration of the analysis. We modified it to adjust the growth rate over time, reflecting the reality that growth rates tend to change particularly as corporations get larger. And, of course, we adjust it each year to reflect actual growth.
Baue: That’s on the economic side, for allocating your proportional share. Did you make any changes on the environmental side, in terms of calculating your climate stabilization targets?
Winkler: We did. C-FACT calls for a fixed percentage reduction of GHG emission intensity year over year. By definition, however, that means that the absolute amount reduced gets smaller over time. We didn't want front-loaded reductions, because our executives feel there's a learning curve with distributed energy-generation technologies. For example, we could have installed renewable energy systems with a 12-year return three years ago that now have a 5-year return, so waiting would put us ahead of the game financially, and the efficiency improvements ahead environmentally. We didn't want to leave money and efficiency on the table. However, it has to be a fine balance, not an excuse to postpone action. Alternatively, we looked at a fixed absolute reduction, but that’s too back-loaded and amounted to procrastination — by that method, our emissions didn't peak until 2040, which is not consistent with what the science says we need to do in terms of reductions trajectories.
Baue: So how did you achieve the fine balance between front- and back-loading emissions reductions?
Winkler: We solved for something slightly different: We solved for how much more do we need to reduce intensity by, year over year — in other words, accelerating reductions. If we reduce our intensity four percent this year, what delta do we need to accelerate it by next year, and the year after, to keep pace with the science? We’re raising the bar every year to hit two goals: absolute reduction, and peak emissions. We’re on target to peak between 2012 and 2015, and we've already gone down.
Baue: So you’ve modified C-FACT from a relatively static model into a more dynamic one.
Winkler: Exactly. You can't just take the model, you have to overlay the context of your business. We’re setting goals based on our best current knowledge, but if we’re not learning new knowledge, then shame on us. We set it up so we have to review C-FACT every year, and be transparent with our findings. In fact, I think of our carbon reporting kind of like any reporting. We’re trying to do this the same way we treat our financial goals: We have to be absolutely transparent, but also incorporate new knowledge as it develops.
I really like the idea of asking these kinds of questions that lead to new knowledge — I'm much bigger on what questions are being asked than on the answers, per se. I'm now toying with the question: Can I calculate the portion of our market value that's goodwill, and what is generated by sustainability. Is there a way to predict how our sustainability program impacts shareholder value and revenue growth?
Baue: I’ve been saying lately that capitalism in a world of expanding resources was a cake walk, in retrospect; creating capital in a world of contracting resources is a whole new ball game, now that we have to measure and take accountability for our impacts on dwindling resources.
Winkler: What I’ve been saying lately is: The effort required to measure should be commensurate with the ability to influence, as should assignment of accountability. For example, we estimate the impact of lifetime product use. We're modeling this across the value chain and product lifecycle a lot of different ways. When we look through the risk/opportunity lens, we see that, where we are accountable for the risk, we’re also exposed to the flip side — that is, the opportunities associated with solving sustainability problems in ways that could generate revenue or other value. Or, if you look down the value chain to our customer’s custody of our products, we may not be accountable for how they apply our technologies, but we can help them with the sustainability impacts associated with their use. It boils down to understanding the ecosystem of impact.
Baue: And managing that ecosystem sustainably. Thanks so much for speaking with me, Kathrin.
Winkler: My pleasure – thank you, Bill.